Editorial: Is city jumping out of frying pan into fire?

Published: Wednesday, December 5, 2012 at 05:05 PM.

Gastonia City Council members made a smart move when they decided to get out of the real estate business by selling off city-owned property. Too bad they now are getting into the banking business.

Council members recently voted 5-2 to sell a South Street property for $201,000 to folks who plan to open a Subway restaurant. The idea, City Council supporters say, is to boost downtown.

The deal calls for Allison Pell, who is forming an LLC to buy the 8,000-square-foot building, to pay $10,000 up front. The city will finance the remaining $191,000 debt at 2.48 percent interest.

The most bothersome aspect with this deal is the city’s venture into the lending business.

Pell, the buyer, says it’s hard to get a bank loan these days. It’s true that banks, still dealing with fallout from the years of easy-come loans, have stricter rules for lending. That doesn’t mean, however, that government should pick up the slack.

It would be better if Pell’s business plan passed muster with a qualified lending institution. If he can’t get the money that way, what risk is the city taking by financing his restaurant venture?

Gastonia City Council members made a smart move when they decided to get out of the real estate business by selling off city-owned property. Too bad they now are getting into the banking business.

Council members recently voted 5-2 to sell a South Street property for $201,000 to folks who plan to open a Subway restaurant. The idea, City Council supporters say, is to boost downtown.

The deal calls for Allison Pell, who is forming an LLC to buy the 8,000-square-foot building, to pay $10,000 up front. The city will finance the remaining $191,000 debt at 2.48 percent interest.

The most bothersome aspect with this deal is the city’s venture into the lending business.

Pell, the buyer, says it’s hard to get a bank loan these days. It’s true that banks, still dealing with fallout from the years of easy-come loans, have stricter rules for lending. That doesn’t mean, however, that government should pick up the slack.

It would be better if Pell’s business plan passed muster with a qualified lending institution. If he can’t get the money that way, what risk is the city taking by financing his restaurant venture?

While we would prefer to see the business deal handled in a more traditional way – buyer secures a loan; seller gets money at closing – this deal isn’t all bad.

If Pell defaults, the city still will own the property and can market it to other buyers. Pell says his company will spend about $200,000 to renovate the building. The improvements could mean that the city would have a better property to market in the event the Subway doesn’t make it.

Additionally, the city will realize revenue from utility sales and property taxes when the property is sold.

Provided the deal isn’t upset by a higher bidder – the sale is for less than tax value and there’s still time for another buyer to top Pell’s bid – this deal will be complete in less than a month. .

Subway franchises are highly successful, so the business will come with good credentials. That’s a plus.

The city, however, will need to be firm in ensuring that Pell’s company stays up to date with payments and will need a clear policy of how to handle any delinquency.

Taxpayers already have a bad taste with government lending in Gastonia. Using state and federal loans and grants, the city loaned Nick LaVecchia $700,000 to redevelop the Webb Theater and open a high-end restaurant last year.This also was a 10-year-with-interest deal, and LaVecchia already is behind in making payments.

We wish any new Gaston County business good luck and great success. A downtown Subway, with its government backing, will be one for taxpayers to watch.